Who would have predicted that the tsunami hitting the Fukushima Daiichi nuclear power plant in 2011 would cause havoc in the Japanese tie sector? The nuclear closures following the accident caused acute power shortages, and to minimise consumption from air conditioning, office temperatures were increased. So business casual became the norm, and ties went out of fashion. But you can bet a nuclear accident was not high on the risk register of Japanese tie manufacturers in 2010. Should we worry about so-called ‘’Black Swan events’’?
They are very low probability, but can be high impact. And they are hard to predict. When a Black Swan appears on the horizon, how quickly does management react? We face that situation today. As we speak, the Coronavirus is having a devastating impact on Far East economies. Outside China, it has so far been most obvious in a slump in the travel sector, frantic concerns over component supply chains, a shortage of surgical masks worldwide, stockpiling and much switching to Skype, zoom, blue jeans and internet conferencing. But with no end in sight, no clear understanding of transmission, and ‘super spreader’ cases cropping up across an integrated world, what has your business done to devise a contingency plan for survival? Curfews and shutdowns kill your cash flow and that of your customers. Suppliers may cease production, customers may fail and confidence may plummet. The meeting and hospitality industries are particularly vulnerable, and the load on an already overstretched medical sector looks overwhelming. Insurance, travel and outsourced manufacturing look likely to take an early hit; few businesses will be unaffected if the virus is not contained.
More crucially, how do you protect your workforce worldwide and at home and how will you operate when no one (including you) wants to come to the office or meet anyone? The businesses that survive will be those who think it through and have a plan, rather than watching mute until they become dead ducks. Often forgotten are the minor, but essential, supplies that are intrinsic to safe operations.....so while you reflect on getting staff to work in a world of rationed fuel, or the security of utility services, or the supply of key components and their dependencies, don't forget the availability of boring basics like rubber gloves or communication systems overload. Scary or scare story? It may not happen. That's the nature of risks. But today, a Black Swan is highly visible and heading our way. So as its probability races up the risk register at the rate of contagion; are you on the case? Every Executive team and Board member should be asking how resilient are we to potential disruptions? What do we need to do to ensure the business get through this event? As a minimum, what can we do to reassure employees who may be worried about travelling or working in their offices alongside colleagues?
The best plan is to be proactive, and to have a plan. Burying your head in the sand on these issues could be your swansong!
Robert Armour - January 2020